What should an employment contract include?

A comprehensive employment agreement should include: (1) job title and description of duties; (2) compensation details — base salary, bonus structure, equity grants, and payment schedule; (3) benefits — health insurance, retirement plans, vacation, and sick leave; (4) employment classification — full-time, part-time, exempt, or non-exempt; (5) term — at-will or fixed duration; (6) termination provisions — notice periods, cause definitions, and severance terms; (7) confidentiality and non-disclosure obligations; (8) intellectual property and invention assignment clauses; (9) any restrictive covenants — non-compete, non-solicitation; and (10) dispute resolution procedures.

Are non-compete agreements enforceable?

Non-compete enforceability varies dramatically by state. California, Oklahoma, North Dakota, and Minnesota effectively ban non-competes for employees. Many other states enforce them only if they are "reasonable" in scope — typically limiting duration to 1-2 years, geographic reach to areas where the company actually does business, and activity restrictions to actual competitive roles. The FTC proposed a nationwide ban on most non-competes in 2024, though its implementation remains in legal dispute. Even in states that enforce non-competes, courts often modify overly broad agreements rather than enforcing them as written. Legal Tank's templates are drafted to maximize enforceability in each state.

What is at-will employment?

At-will employment means that either the employer or the employee can end the employment relationship at any time, for any reason (or no reason), without advance notice. This is the default rule in 49 states (Montana is the exception, requiring "good cause" after a probationary period). However, at-will employment has important exceptions: employers cannot terminate employees for discriminatory reasons (race, gender, religion, age, disability), in retaliation for protected activity (filing a workers' comp claim, whistleblowing), or in violation of public policy. A written employment agreement can also modify at-will status by requiring cause for termination or specifying a notice period.

When do I need a severance agreement?

A severance agreement is typically used when an employer terminates an employee (especially in layoffs or without cause) and wants to provide compensation in exchange for a release of legal claims. Severance is generally not required by law, but is offered to: reduce the risk of wrongful termination lawsuits; ensure the departing employee signs a non-disparagement and confidentiality agreement; enforce post-employment restrictions; and maintain goodwill. For employees over 40, the Older Workers Benefit Protection Act (OWBPA) requires specific language and a 21-day consideration period. Typical severance ranges from 1-4 weeks of pay per year of employment.

What is the difference between an employee and an independent contractor?

The distinction between an employee and an independent contractor has significant legal, tax, and benefits implications. Employees receive W-2 tax forms, have taxes withheld, are entitled to benefits and labor law protections, and work under the employer's direction and control. Independent contractors receive 1099 forms, pay their own taxes, are not entitled to benefits, and maintain control over how they perform their work. Misclassifying employees as contractors can result in significant penalties, back taxes, and liability for unpaid benefits. The IRS, DOL, and state agencies use multi-factor tests emphasizing behavioral control, financial control, and the nature of the relationship.

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When Do You Need a Employment Agreement?

You are hiring a new employee for a salaried, executive, or specialized position and need a written contract that clearly defines the role, compensation, benefits, expectations, and termination conditions beyond the basic at-will employment relationship.

Your company is offering a senior executive or C-suite position that includes equity compensation, performance bonuses, golden parachute provisions, or other complex compensation structures that must be precisely documented to avoid disputes and ensure tax compliance.

You need to protect your company's intellectual property, trade secrets, and client relationships by including enforceable confidentiality, invention assignment, non-compete, and non-solicitation provisions in the employment relationship from the outset.

You are hiring an employee who will relocate for the position and need to document relocation assistance, housing allowances, or moving expense reimbursement along with clawback provisions if the employee voluntarily resigns within a specified period.

A key employee is being promoted to a new role with significantly different responsibilities, compensation, and reporting structure, and you need to formalize the new terms rather than relying on informal verbal promises that could lead to misunderstandings.

You are transitioning an independent contractor to full-time employee status and need a comprehensive employment agreement that documents the new classification, benefits eligibility date, and any changes to compensation structure.

What Should a Employment Agreement Include?

Position, Duties, and Reporting Structure

Define the employee's job title, department, primary duties and responsibilities, and reporting relationships. Include a clause acknowledging that duties may evolve over time and that the employee may be assigned additional responsibilities consistent with their position. For executive roles, specify whether the employee serves as an officer or director and any board reporting obligations.

Compensation and Benefits

Detail the complete compensation package including base salary (annual amount and pay frequency), bonus eligibility (performance metrics, target amount, and payment timing), equity or stock option grants (vesting schedule, exercise price, acceleration triggers), commission structures, and any other incentive compensation. Specify eligibility for company benefits including health insurance, retirement plans, paid time off, parental leave, professional development, and any executive-specific perquisites.

Employment Term and At-Will Status

Specify whether the employment is for a definite term (e.g., 2 years with renewal options) or at-will. For at-will employment, include the standard disclaimer that either party may terminate the relationship at any time, for any lawful reason, with or without cause. For term employment, define the initial term, renewal conditions, and what constitutes cause for early termination. Note that executive agreements often modify the at-will default to require cause for termination or provide severance upon termination without cause.

Confidentiality and Non-Disclosure

Require the employee to maintain the confidentiality of the company's trade secrets, proprietary information, business strategies, customer data, financial information, and other sensitive materials both during employment and for a specified period after departure. Define what constitutes confidential information broadly enough to protect the company but specifically enough to be enforceable. Include the federal Defend Trade Secrets Act notice regarding immunity for whistleblowing disclosures.

Invention Assignment and Work Product Ownership

Require the employee to assign all inventions, copyrights, patents, trade secrets, and other intellectual property created within the scope of employment or using company resources to the employer. Include a disclosure obligation for pre-existing inventions the employee brings to the role. Note that several states — including California, Delaware, Illinois, Minnesota, and Washington — restrict invention assignment clauses and require employers to carve out inventions developed entirely on the employee's own time without using company resources.

Termination Provisions and Severance

Define the circumstances under which either party may terminate the agreement, including termination for cause (define specific cause events such as material breach, fraud, conviction of a felony, or persistent failure to perform), termination without cause (with notice period and severance obligations), and voluntary resignation (notice period and transition obligations). For executive agreements, include detailed severance provisions specifying the payments, benefits continuation, and equity treatment upon different termination scenarios.

Restrictive Covenants

If applicable, include post-employment non-compete, non-solicitation, and non-recruitment provisions with enforceable scope, geographic boundaries, and duration. Address whether these restrictions apply regardless of how employment terminates or only in specific scenarios. In states with non-compete restrictions, ensure compliance with notice periods, income thresholds, and garden leave requirements.

Dispute Resolution and Governing Law

Specify whether employment-related disputes will be resolved through litigation, binding arbitration, or mediation followed by arbitration. Choose the governing state law and venue for legal proceedings. Include a jury trial waiver if enforceable in your jurisdiction. Note that mandatory arbitration provisions in employment agreements have faced increasing legislative and judicial scrutiny, particularly for sexual harassment and discrimination claims.

Signature Requirements

E-Signature Valid

Employment agreements are valid with electronic signatures under the ESIGN Act and UETA.

Related Employment Templates

A employment agreement is often used alongside other employment documents. Depending on your situation, you may also need:

Non-Compete Agreement Template

Employment

Free Severance Agreement Form

Employment

Generate a custom employment agreement with AI instead

How to Fill Out a Employment Agreement

Enter Employee and Employer Information

Fill in the employer's full legal name, business address, and state of incorporation or formation. Enter the employee's full legal name, position title, start date, and work location (including remote work provisions if applicable). If the employee will report to a specific individual or board, identify the reporting structure.

Define the Compensation Package

Enter the base salary amount and pay frequency. Detail any bonus structure including eligibility criteria, target percentage, and the company's discretion over bonus determinations. If equity compensation is offered, specify the number of shares or options, vesting schedule (typically 4-year with 1-year cliff), exercise price, and any acceleration provisions. List all benefits the employee is entitled to receive, along with eligibility dates.

Specify Employment Duration and Probationary Period

Choose between at-will employment or a fixed term. If at-will, include the standard at-will disclaimer. If a fixed term, enter the initial term, auto-renewal provisions, and early termination conditions. If you include a probationary or introductory period (commonly 90 days), clarify that successful completion does not change the at-will nature of the employment unless the agreement provides otherwise.

Complete Confidentiality and IP Assignment Sections

Define the scope of confidential information protected by the agreement. Specify the duration of confidentiality obligations after employment ends (commonly 2-5 years, or indefinitely for trade secrets). For the invention assignment, confirm compliance with state-specific carve-out requirements and have the employee list any pre-existing inventions or IP on an attached exhibit to avoid future ownership disputes.

Configure Termination and Severance Terms

Define the specific events that constitute "cause" for termination. Enter the notice period required for termination without cause (typically 30-90 days for executives) and the severance package terms — weeks or months of base salary continuation, bonus proration, benefits continuation (COBRA subsidy), equity acceleration, and outplacement services. Include a release of claims requirement as a condition of receiving severance benefits.

Add Restrictive Covenants If Applicable

If including non-compete, non-solicitation, or non-recruitment provisions, enter the restricted activities, geographic scope, and duration. Ensure compliance with the employee's state of residence — check for income thresholds, advance notice requirements, and garden leave mandates. If the employee's state prohibits non-competes, consider relying solely on non-solicitation and confidentiality provisions.

Select Governing Law, Sign, and Distribute

Choose the governing state law and dispute resolution mechanism. Have both parties sign and date the agreement, with each retaining a fully executed copy. Provide the employee with a reasonable review period before signing — 7 to 14 days is standard for executive agreements — and advise them in writing of their right to consult an attorney. Attach all referenced exhibits (equity grant agreement, benefit summaries, invention disclosure form).

Free Template vs Custom Employment Agreement

Feature	Free Template	Custom (AI or Attorney)
Basic employment terms, duties, and compensation
At-will disclaimer or fixed-term provisions
Comprehensive confidentiality and NDA provisions	-
State-compliant invention assignment clauseMust comply with state carve-out laws	-
Executive severance and golden parachute provisions	-
Equity compensation and vesting schedules	-
Non-compete and non-solicitation provisions	-
Attorney-reviewed for employment law complianceRecommended for executive and key employee agreements	-

Employment Agreement Template FAQ

What is an employment agreement?

An employment agreement is a legally binding contract between an employer and an employee that establishes the terms and conditions of the employment relationship. While many employment relationships in the United States are "at-will" — meaning either party can terminate the relationship at any time for any lawful reason — a written employment agreement provides specificity and protection that the default at-will relationship lacks. The agreement typically covers the employee's position and duties, compensation and benefits, employment duration, confidentiality obligations, intellectual property assignment, termination conditions and severance provisions, and any post-employment restrictive covenants. Employment agreements are most commonly used for executive and senior management positions, employees with specialized skills or knowledge, positions involving significant equity compensation, and roles where the employee will have access to particularly sensitive trade secrets or client relationships. Even for at-will employees, a written agreement documenting the key terms reduces misunderstandings, prevents disputes over verbal promises, and creates a legally enforceable framework that protects both the employer and the employee.

Is an employment agreement the same as an offer letter?

No, though they serve related purposes. An offer letter is typically a brief, informal document that outlines the basic terms of a job offer — position title, start date, salary, and general benefits eligibility — often spanning 1 to 3 pages. It is designed to communicate an offer and secure the candidate's acceptance. An employment agreement is a comprehensive legal contract, often 10 to 30 pages, that establishes the complete terms and conditions of the employment relationship including detailed compensation structures, confidentiality obligations, invention assignment provisions, termination conditions, severance terms, restrictive covenants, and dispute resolution procedures. For entry-level and mid-level positions, an offer letter may be sufficient. For senior, executive, or specialized roles, a full employment agreement is strongly recommended because it addresses scenarios the offer letter ignores — what happens if the employee is terminated without cause, who owns inventions the employee creates, what restrictions apply after departure, and how disputes will be resolved. Many companies issue an offer letter first and then have the employee sign a comprehensive employment agreement on or before their start date.

Can an employment agreement override at-will employment?

Yes, an employment agreement can modify or eliminate the at-will default, and this is one of the primary reasons executives and key employees negotiate written agreements. An employment agreement can establish a fixed term of employment (e.g., 3 years), require the employer to have "cause" to terminate before the term expires, define specific severance obligations upon termination without cause, require advance notice before termination, and provide for continued compensation and benefits during a transition period. However, the agreement must clearly and unambiguously state that it modifies the at-will relationship — courts generally require explicit language to override the at-will presumption and will not infer a for-cause employment standard from ambiguous terms. Conversely, an employment agreement can also reinforce at-will status while still providing valuable protections: many agreements include an at-will disclaimer alongside provisions that require cause for termination during a specified initial period, provide severance upon termination without cause, or guarantee a minimum notice period. The key is that the agreement controls the terms of the relationship, and both parties should clearly understand whether they are creating a for-cause or at-will arrangement.

What should be included in the termination clause?

A comprehensive termination clause should address every scenario under which the employment relationship may end. First, define termination for cause with a specific list of events that constitute cause — material breach of the agreement, fraud or dishonesty, conviction of a felony, willful misconduct, persistent failure to perform duties after written notice and a cure period, and violation of company policies. Second, address termination without cause, specifying the notice period required (typically 30 to 90 days for executives) and the severance package provided. Third, cover voluntary resignation, including the employee's notice obligation (usually 2 to 4 weeks) and any forfeiture provisions for unvested equity or bonus clawbacks. Fourth, address termination due to disability or death, including disability insurance benefits and any continued payments to the employee's estate or beneficiaries. Fifth, include a change of control provision for executive agreements that addresses what happens to the employee's position, compensation, and equity if the company is acquired, merged, or undergoes a significant change in ownership. Finally, specify which provisions survive termination — typically confidentiality, invention assignment, non-compete, non-solicitation, and indemnification obligations continue after the employment ends.

Do I need an employment agreement for every employee?

While you are not legally required to have a written employment agreement for every employee, the answer to whether you should depends on the role and the risks involved. For executives, senior managers, employees with access to trade secrets, employees receiving equity compensation, and employees being relocated, a comprehensive employment agreement is strongly recommended to protect both parties. For standard at-will employees, many companies use a combination of an offer letter and standalone policy documents — an employee handbook covering general policies, a separate confidentiality and invention assignment agreement, and a non-compete or non-solicitation agreement if applicable. This modular approach is often more efficient than creating individualized employment contracts for every hire while still providing the necessary legal protections. However, even for standard employees, having written documentation of the key employment terms (position, compensation, at-will status, and confidentiality obligations) is important for avoiding disputes and demonstrating compliance with employment laws. The trend in employment law is toward greater documentation requirements, with many states now mandating written notice of wage rates, pay dates, and other employment terms at the time of hire.

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Reviewed by licensed attorneys · Editorial policy · Last updated March 2026

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